J*AOUNIS3
Loss-making EADS defence
businesses face shake-up
ANDREW DOYLE/MUNICH
EADS IS TO restructure its loss-making Defence and Civil
Systems (DCS) unit with a cross-
border integration plan aimed at
"building the basis for profitable
growth".
The company says its French
and German defence businesses
are to be "rapidly combined within
cross-border structures."
The move is part of plans by
EADS to reduce dependence on its
80% holding in Airbus by turning
around the defence activities and
preparing the ground for what it
hopes will be "sustained growth".
EADS executive vice president
and head of DCS, Thomas Enders,
says integration will allow for "bet
ter resource allocation, which will
enhance our products and services
and provide an improved cost
base". At die same time, he says, the
new structure must be "compatible
with the requirements of cus
tomers in France and Germany,
particularly with respect to nation
ally sensitive issues".
DCS encompasses missiles,
defence electronics, telecommuni
cations and services. "To reach our
growth and profitability targets we
need to achieve the turnaround
quickly," says Enders.
EADS says DCS is looking to
make acquisitions and initiate new
partnerships but will also have to
make divestments, with shrinking
defence budgets in France and
Germany requiring more work
force reductions. Around 1,500
staff were shed during 2000 and die
company estimates a further 950
jobs will go in France and 550 in
Germany "if the market situation
does not improve".
Says Enders: "Our business,
especially in defence electronics, is
overly dependent on our home
markets.We need to expand our
overseas business gready."
Four new DCS business units
are to be created:
• MBD - die missiles venture
between EADS and BAE Systems
- will "soon be enlarged" with the
addition of Alenia Marconi
Systems to form "MBDA". Also
planned is the "speedy integration"
of German missiles unit LFK.
• Defence Electronics will inte
grate French and German activi
ties "under one roof to attack
growing airborne systems and
command control communica
tions intelligence, surveillance and
reconnaissance (C4ISR) markets.
• Services will aim to build pres
ence in die market for outsourced
military and governmental services
in France, Germany and Spain.
• Telecommunications will focus
on EADS Defence and Security
Networks, a joint venture widi
Nortel Networks.
In 1999 DCS achieved pro-
forma revenues of €3.8 billion,
16% of the EADS total. The com
pany was formed in July widi die
merger of DaimlerChrysler
Aerospace Aerospatiale-Matra,
andCASA. •
Aeroflot signs agreement for major Airbus buy
AEROFLOT HAS signed a letter of intent widi Airbus
Industrie to acquire around 30
aircraft. Aldiough the deal had not
been confirmed as Flight Inter
national closed for press, it is
believed to cover mainly die A3 20
family, although some long-haul
aircraft are also involved.
The reports emanated from a
senior government source in Paris
following a meeting between the
prime ministers of France and
Russia attended by Aeroflot's gen
eral director, Valeri Okulov, and
senior Airbus officials.
The airline has been discussing
die acquisition of A319s and A3 20s
widi Airbus and majority share
holder EADS since mid-2000. The
A318 is also likely to be included,
to replace Tu-134s and Tu-154s on
European services. The airline
already operates Boeing 737, 767
and 777s and Airbus A310s.
Aeroflot has come under consid
erable pressure to add new Russian
types to its fleet, but has encoun
tered major difficulties in raising
die finance. As a result die ready
availability of finance for Western
aircraft is understood to have been
a prime factor in die talks.
Completion of the deal will be a
serious blow for Russian industry
and is likely to sharpen interest in
talks between Tupolev, Ilyushin
and Yakovlev to set up a single inte
grated holding company for dieir
civil aviation activities. The three
manufacturers say they are com
mitted to merging design, produc
tion and sales activities ahead of
forming a single legal entity •
Aerflot already operates Western aircraft types such the Boeing
Alitalia moves search
for partner to USA
ALITALIA HAS abandoned immediate plans to find a
European strategic partner and is
switching its attention to finding a
US partner for a transadantic deal.
The Italian state-owned carrier's
announcement of its planned strat
egy up to die end of 2004 envisages
a "stand alone" plan for die time
being. Several senior directors are
likely to resign if die scheme is not
approved by die government.
Talks, principally with Air
France and die SAirGroup, over
taking a stake in Alitalia following
the breakup of its alliance widi
KLM last year, are effectively on
ice following an announcement
diat talks widi frontrunners SAir
Group have stalled.
On die transadantic front,
Alitalia already has a codesharing
and marketing tie-up widi
Continental but as an open skies
arrangement between Italy and die
the USA moves into place, die
Italian airline wants to strengthen
its position in die USA. A deal widi
American Airlines is said to be one
possibility. Alitalia has also an
nounced a new codesharing agree
ment widi Varig of Brazil.
Fleet and route changes are also
planned, as die loss-making airline
concentrates on a return to profit
this year. Hong Kong and South
Africa services are among die most
vulnerable as it reinforces strategic
markets like the USA, Japan,
France, die UK, and Germany or
develops routes in die Middle East
and North Africa.
In terms of the fleet, Alitalia
plans to spend as much as $3.5 bil
lion introducing smaller aircraft to
improve yield and load factors and
replacing older aircraft over die
jiext four years.
The scheme calls for an increase
in fleet numbers from 166 aircraft
last year to 192 by 2004. A compa
ny is being set up in Ireland to
optimise the financing of fleet
acquisition.
Boeing 777s will form die heart
of the long-haul fleet as 747-2 00s
and MD-lls are phased out.The
767 fleet will also be bolstered.
In addition, 15 Airbus A-319s
will be introduced by 2 004, and die
Embraer ERJ-145 regional fleet
will be increased from 6 to 14. •
FLIGHT INTERNATIONAL 2 - 8 January 2001